This consultation paper proposes changes to the PRA rulebook to implement the Financial Policy Committee’s (FPC) recommendation on loan to income (LTI) ratios in mortgage lending.
The FPC is charged with taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC is required to publish a Financial Stability Report (FSR) twice a year which must identify key threats to the stability of the UK financial system. As outlined in the June 2014 FSR, the recovery in the UK housing market has been associated with a marked increase in the share of mortgages extended at high loan to income multiples. At its June meeting, the FPC decided to address a recommendation to the PRA and the Financial Conduct Authority asking them to ensure that mortgage lenders limit the number of mortgage loans made at or greater than 4.5 times LTI to no more than 15% of their overall number of mortgage loans.
This CP is relevant to banks, building societies, friendly societies, industrial and provident societies, credit unions, PRA designated investment firms, and overseas banks in relation to their UK branch activities. The proposed rules also require these firms to apply the rules at UK subsidiary level in relation to firms not already caught by the rules.
The PRA and the FCA will work together to ensure that their respective implementation proposals are complementary and co-ordinated.